On Tuesday, April 3, 2013 the Securities and Exchange Commission (SEC) ruled that social media platforms, including Facebook and Twitter, are acceptable channels through which material information can be disclosed to investors.
This guidance (which was significantly longer than 140 characters) appears to be a natural evolution of Regulation FD, which mandates that public companies announce potentially market-moving information simultaneously to all investors. In 2008, the SEC said that companies could use corporate web sites to announce material information, so long as investors are made aware that the site would be used for that purpose. Acknowledging the “.value and prevalence of social media channels in contemporary market communications,” the SEC noted that the same standards apply to the use of social media outlets as an avenue of disclosure.
Tuesday’s action stemmed from an investigation by the SEC into a posting from Netflix CEO Reed Hastings – on his personal Facebook page – stating, “Netflix monthly viewing exceeded 1 billion hours for the first time ever in June.” This disclosure was made solely on Hastings’s Facebook page, not through any other channels, such as a press release or Form 8-K filing. Shares of Netflix rose significantly that day. The SEC was then forced to consider whether this posting violated Regulation FD, since, as stated in the report, Hastings’s personal Facebook page had never been used to announce company metrics, and Netflix had not previously informed shareholders that the CEO’s Facebook page would be used for that purpose.
In its report, the SEC acknowledged the uncertainty concerning the application of Regulation FD to social media. It also determined not to pursue an enforcement action against Hastings or Netflix.
For public companies, the freedom to use social media to communicate with the investing public may come as welcome news. As a practical matter, it’s probably easier for retail investors to follow companies via Facebook, Twitter, and the like than it is for them to monitor press releases and SEC filings. For the forseeable future, executives and IR professionals would be wise to adopt a balanced approach to incorporating social media into their disclosure policies. Companies can continue issuing press releases via recognized service platforms and then reference those announcements on their social media platforms. The practice of making associated SEC filings to complement any posts and tweets should also be maintained to ensure compliance with Regulation FD. And, Market Surveillance authorities must still be contacted in advance of material disclosures, regardless of the distribution channel.
Netflix and Mr. Hastings ultimately blazed a trail for the next phase of investor communication practices. Now that the SEC has ruled on this matter, any subsequent infractions will likely be met with a harsher regulatory response.
The SEC’s full report is available via this link.